ACCOUNTING FOR NOT-FOR-PROFIT
ORGANISATION
NOT-FOR-PROFIT ORGANISATION
There are certain organisations which are set up for
providing services to its members and the public in general.
Such organisations are called NOT-FOR-PROFIT
ORGANISATION.
Eg: Clubs, charitable institutions, schools, religious institutions
trade unions, welfare societies etc.
NOT-FOR-PROFIT ORGANISATION is defined as “a non-
profit seeking entity which does not usually involve in trading
activities, but engage in rendering services to members and
society”
Features of accounting for not-for-profit organisation
1. Their main objective is to render services to its
members and the public
2. They don’t normally engage in trading activities
3. They are not expected to earn profit
4. Credit transactions are not usually made
5. No trail balance is prepared
6. Do not prepare Trading, Profit & Loss a/c
7. Their affairs are manages by executive committee
elected by its members
1 Accounting for Not-for-Profit Organisations- Aneesh.M (12032)
ACCOUNTING RECORDS OF NOT-FOR-PROFIT
ORGANISATION
Usually NOT-FOR-PROFIT ORGANISATION follow the
cash system of accounting. A NOT-FOR-PROFIT
ORGANISATION prepares three statements at the end of the
accounting year, which form its final accounts. These
statements are:
1. Receipt & Payment Account
2. Income & Expenditure Account
3. Balancesheet
RECEIPT AND PAYMENT ACCOUNT
The Receipt and Payment account is a real account
which is prepared at the end of an accounting year giving a
summary of all cash receipts and payments recorded in cash
book. It is debited with all items of receipts and credited with
all payments. At the end of the period, the account is balanced.
The final balance in this account represents the balance of cash
in hand or at the bank or overdraft.
Features of Receipt and Payment Account
1. It is a real account
2. It is a summary of cash book
3. All receipts are debited and payments are credited
4. It usually begins with opening balance of cash in hand
or at bank
5. It usually ends with closing balance of cash in hand or
at bank
6. It doesn’t disclose the working results of the concern
 7. It includes all receipts and payments of capital and
revenue nature.
8. It records all receipts and payments relating to previous,
current and subsequent years.
INCOME & EXPENDITURE ACCOUNT
An Income and Expenditure account is a nominal
account prepared by a non- Profit Organisation, in order to
ascertain the surplus or deficit of a particular period. It is
prepared in the form of Profit and Loss account. All expenses
and losses are debited and all incomes and gains are credited.
The surplus or deficit is transferred to Capital Fund in the
Balance sheet.
Features of Income &Expenditure Account
1. It is a nominal account
2. Only revenue items are recorded
3. Income and expenditure of the current year only are
included.
4. Non-Cash transactions (Depreciation, Provision of bad
debts, accrued income etc.) are adjusted in it.
5. There is no closing balance in this account.
6. It is prepared to find out Surplus (Income over
expenditure) or Deficit (Expenditure over income)
7. The surplus or deficit is transferred to Capital Fund in
the Balance sheet.
Preparation of Income and Expenditure Account
The following steps are followed to prepare income and
expenditure account from receipt and payments account.
1 Accounting for Not-for-Profit Organisations- Aneesh.M (12032)
1. Read the Receipt and payment account thoroughly.
2. Exclude the opening and closing balances of cash and
bank
3. Exclude the capital receipts and capital payments
4. Identify the revenue incomes relating to the current year
from debit side of Receipt and payment account
5. Identify the revenue expenditure relating to the current
year from credit side of Receipt and payment account
6. Non-Cash transactions (Depreciation, Provision of bad
debts, accrued income, profit or loss on sale of fixed
assets etc.) are adjusted in it.
7. Finally, the excess of income over expenditure
(Surplus) or excess of expenditure over income
(Deficit) be ascertained and transferred to Capital Fund.
BALANCE SHEET
The balance sheet of a non-profit organisation is
prepared for ascertaining the financial position of the
organisation. It shows assets and liabilities as at the end of the
year. Assets are shown on the right hand side and liabilities on
the left hand side.
The procedure in the preparation of balance sheet is as
follows:
1. Capital fund at the beginning is ascertained by
preparing a statement of affairs(Opening Balance
Sheet)
2. Surplus from Income and Expenditure account must be
added to the Capital Fund (Deficit must be deducted).
3. Outstanding expenses, income received in advance etc
on closing date be shown on the liability side
 4. Income receivable and expenses paid in advance etc year
must be shown on the assets side. Non- cash transactions are Non- cash transactions are
5. Closing cash in hand and at bank appearing in Receipts not made made
and Payments Account must be shown on the assets Its closing balance is carriedIts balance (Surplus or
side. to the succeeding year. Deficit) is transferred to
6. The credit balance of Receipts and Payments Account Capital Fund.
(Bank Overdraft) should be shown on the liability side. It records both revenue and It records only revenue
7. Assets in existence at beginning of the year should be capital items items.
Calculation of the amount of Subscription credited to
adjusted for additions and depreciation
Income and Expenditure Account
8. New assets acquired during the year which appear on
the payment side of Receipts and Payments Account Particulars Amount
should be shown on the asset side of the closing balance (Rs.)
sheet.
9. Any special collection of non-recurring nature (Capital Subscription received during the year xxx
Items) should be shown on the liability side. Add: Closing Subscription Outstanding xxx
Add: Opening Subscription Received in Advance xxx
Receipts and Payments Account V\S Income and Expenditure
Account xxx
Less: opening Subscription Outstanding xxx
Receipts and Payments Income and Expenditure Less: Closing Subscription Received in Advance xxx
Account Account The amount of Subscription credited to Income xxx
and Expenditure Account
Real account Nominal Account Subscription: Subscription is a membership fee paid by the
Summary of cash book Like a Profit and Loss member on annual basis. This is the main source of income of
account non-profit organisation. Subscription paid by members is
Its debit side shows receipts Its debit side shows expenses
shown as receipt in Receipts and Payments Account.
and credit side shows and losses and credit side
payments shows incomes and gains Legacy: it is the amount received by non-profit making
It starts with an opening It doesn’t start with cash or organisations on the death of a person as per his “will”. It is
balance of cash or bank bank balance usually a non-recurring nature (Capital Items)
It records all receipts and It records income and
payments of previous year, expenses of current year only Donation: Donations are amounts receives by way of gift. It
current year and succeeding may
1 Accounting for Not-for-Profit Organisations- Aneesh.M (12032)
 a) Specific Donations
b) General Donations
Calculation of the amount of Expenses debited to Income
and Expenditure Account
Particulars Amount
(Rs.)

Expenses paid during the year xxx

Add: Closing Expenses Outstanding xxx
Add: Opening Expenses Paid in Advance xxx

xxx
Less: opening Expenses Outstanding xxx
Less: Closing Expenses Paid in Advance xxx
The amount of Expenses debited to Income and xxx
Expenditure Account

Calculation of the amount of Stationery debited to Income

and Expenditure Account
Particulars Amount
(Rs.)
Payment made for stationery during the year xxx
Add: Opening stock of Stationery xxx
Add: Amount due for stationery bought during the xxx
year xxx

Less: Closing stock of Stationery xxx

The amount of Stationery debited to Income and xxx
Expenditure Account

1 Accounting for Not-for-Profit Organisations- Aneesh.M (12032)